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Could it be that global equity markets are just too irrational to merit
the obsessed attention they're enjoying these days? That's the question some
observers were asking Friday as indices in Asia and Europe posted gains only
to decay again as the day progressed. It was a fittingly wacky end to a week
that has seen bourses see-saw with unprecedented volatility. The VIX, Wall Street's leading measure of market volatility and investor fears, briefly scaled 80 points for the first time in its 18-year history Thursday, as stocks slid over recession worries."

"We really should stop looking at what markets do on a daily or weekly
basis, because they've become purely speculative. Economic reason has been
tied up and shut in the cellar," says economist Marc Touati, director
general of research and strategy group Global Equities in Paris. Touati adds
that recent developments  including American and European bail out plans
for banking and financial systems valued together at over $4 trillion and
the drop in oil prices and value of the euro  have given markets lots of
reason to be bullish big time. "But they're are acting like spoiled kids
throwing a tantrum: They've gotten gifts and excessive daily attention, but
they just rant harder. Let's leave them a bit to work through it, calm down,
and get back to normal."

That's easier said than done when the stock market's evolution is so central
to a global economy facing a slow-down  or possible
recession. And as this week wound down, observers of both markets and
wider economies seemed uncertain whether to applaud or cry. Following dismal sessions Wednesday and Thursday, activity on Asian indices Friday was
mixed, with Toyko's Nikkei up 2.2% aside more modest gains in Singapore and
China. Hong Kong's Hang Seng remained flat, however, while South Korea and
Australia slightly slumped. Inspired by that trend  as well as Wall
Street's rebound from early losses Thursday to finish 4.7% up  European
markets began Friday higher with London's FTSE 100, Frankfurt's DAX, and
Paris' CAC 40 all by more than 4%  before receding by midday to hover just above opening levels.

So why the new reversal, and what does it bode for the coming days and
months? Anyone claiming they know is blowing smoke. Though the brutal rout of
global markets last week arose from fears the world's banking and
financial markets risked total collapse in the face of the toxic credit
crisis, government rescue plans detailed this week in both the U.S. and Europe
mostly allayed those concerns, sparking surges on Monday and Tuesday. Market
plunges since then came in the wake of negative news indicating serious
slowing of American economic activity.

But the late week rally is harder to explain. The mini-boost has been
accredited to better than expected quarterly results from tech companies
like IBM and Google. Yet that good news Thursday coincided with figures showing that
American industrial production in September dropped by 2.8%  the
steepest fall since December, 1974. That came on the heels of statistics
showing all-important consumer spending in the U.S. had tightened more than
forecast. Meanwhile, despite government rescue plans and central bank rate
cuts, there is little sign so far that frozen credit flows are thawing fast
enough to get badly needed funds moving to businesses and households
quickly.

Given that contrasting picture and yoyo-ing it produced this week, it might
be wise to prepare for markets altering their view of the economic glass as
half full or empty almost daily. When investors eventually return to
reasoned trading, some observers think, the wider picture won't be as dark
as many people expect. Touati notes, for example, the rescue plans, rate
cuts, drop in oil prices, and fall of the euro are all positive developments
for businesses. The downward pressure on stock prices across the board,
meanwhile, suggests speculative markets are already factoring in anticipated
declines in company results as the economy slow down. In other words, Touati
says, a lot of the pain now being felt prepares the gain of an eventual
rebound.

"Markets always lead us out of recession by anticipating recovery in the
same way their fears of economic slowing accelerate the arrival of that very
crunch," Touati says. "Right now, a lot of the medicine for a remedy for
long-term recovery is already out there, but markets are in such a
micro-short-term speculative mode they aren't taking it. That's what has
driven share prices of many fundamentally sound companies so low that
investors willing to take a risk now will make a killing in the longer
term."